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The International Swaps and Derivatives Association recently published documentation for bullet loan credit default swaps, superseding a supplement published in May 2007. The updated documentation will govern single-name LCDS and untranched loan index CDS in North America. This article explains the key aspects of the Bullet LCDS documentation, including the introduction of a new "Refinancing Event."

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American International Group's derivatives unit and Goldman Sachs have unwound bad mortgage trades that remained after AIG received a government rescue package. AIG Financial Products is terminating credit default swaps insuring about $3 billion of mortgage-asset pools arranged by Goldman. That termination amounted to losses between $1.5 billion and $2 billion but reduced AIG's exposure.

The China Banking Regulatory Commission, in efforts to spot asset bubbles, told banks to report by the end of June on their risk exposure to borrowers. "You can expect more Chinese government policies to contain the impact of this," said Francis Lun, general manager at Fulbright Securities. Having banks reassess their exposure to loan risk is "a sensible thing to do given the amount of bank lending that went into stock and property speculation."

Three industry organizations -- ISDA, AFME and the British Bankers' Association -- responded to the Basel Committee on Banking Supervision's request for feedback on a consultation document issued March 15. The document proposes stress tests for banks' correlation-trading portfolios. The industry groups offered suggestions but said the tests should be based on realistic scenarios and assumptions about the market.

Asian markets developed a renewed appetite for debt as traders learned more about the eurozone's offer to help Greece. The price of insuring Asian bonds against default fell to a three-month low, according to CMA DataVision. "The immediate impact is to remove the prospect of a Greek default," said Gary Jenkins, head of credit strategy at Evolution Securities. "There is still the question of whether the EU is just kicking the Greece problem down the road."

Leveraged-loan markets in Europe and the U.S. are starting to draw more investor interest after an extended bleak period for that area of credit markets. HarbourVest Partners is rolling out a listed fund in Europe to invest in leveraged loans. Lending surged 43% in Europe in the first quarter compared with the same period last year, and leveraged-loan bankers are bullish on the outlook.